How much does bandwidth actually cost?

Konrad von Finckenstein, the head of Canada’s telecom regulator, believes that Internet bandwidth should be treated like any other utility and that Canadians should pay for what they use.

“All ISPs advertise their rates, bandwidth caps and the additional usage charges that apply,” the chairman of the Canadian Radio-television and Telecommunications Commission (CRTC) testified before politicians on Parliament Hill Thursday. “Consumers can shop around for the plan that best meet their needs. Internet services are now sold like other public utilities, such as water, gas and electricity.”

However, the problem is that those other utilities have a public price that can be easily determined. Canadian consumers can find out the wholesale cost of oil simply by logging onto the Internet or reading a newspaper, while the price of gas and electricity is regulated in Canada.

In each case, if Canadians want to, they can figure out what the rough cost of delivering those utilities is for service providers.

When it comes to Internet bandwidth however, it’s not so easy to discern those costs.

The CRTC’s recent ruling — which mandated that smaller Internet service providers (ISPs) impose the same bandwidth caps on their users as those which the larger incumbents employ with their own retail customers — now looks all but dead. But usage-based billing is alive and well in Canada.

Related

Canada’s largest telecoms don’t want to say how much it costs to deliver a gigabyte of bandwidth and have refused to disclose such data, arguing that information is both proprietary and competitively sensitive. They also argue that it’s difficult to calculate the specific cost of delivering bandwidth since the cost varies based on the technology being used, the user’s location and the time of day.

Because of the legacy costs associated with building out networks to the far-flung reaches of the country, as well as other operational expenses, insiders say it’s more expensive to deliver a gigabyte of data to Northern Manitoba than it would be in downtown Toronto.

At the same time, it would be more expensive to deliver services to a user at 8 p.m. on a Monday evening, when there are millions of people taxing the broadband system, than it is to deliver services in the middle of the night on a Thursday when the network is under-utilized.

Still, other smaller ISPs contend the overage fees being sought by companies like Bell Canada amount to little more than a huge markup meant to pad the company’s bottom line.

“The cost associated with transmission and switching on a modern network is a non-issue — less than five cents per gigabyte and dropping fast,” David Buffett, chief executive of Radiant Communications Inc., an independent ISP, wrote in the Vancouver Sun this week.

“If the CRTC ruling survives federal government scrutiny, however, consumers will be paying in excess of $2 per gigabyte. (That’s about a 400-per-cent markup.)”

[Correction: Charging $2 of overage fees when data costs 5 cents per gigabyte to transmit would actually be a 3,900% mark up.]

Depending on who you believe, the cost for a large incumbent ISP to deliver one gigabyte of data — when you factor in fixed costs like fibre optic cables and networking gear, as well as operating costs such as technicians and electricity — can range anywhere from a few pennies to between 10¢ and 15¢ per GB.

Netflix, for example, has claimed the cost is about 1¢ per GB. Other analysts told the Financial Post the rough average is closer to 10¢ per GB. Incumbents contend it’s much more than that. The truth likely lies somewhere in the middle.

But even if one assumes that it costs Bell or Rogers between, say, 15¢ and 25¢ per gigabyte — an estimate which many experts would peg as too high — with overage fees of between $1.50 and $5.00 for each additional GB a user downloads beyond their cap, such a pricing scheme still ensures a healthy profit margin for the provider.

Large providers contend that these overage penalties are necessary in order to generate the revenue needed to reinvest in their networks and argue that the fees will be used to build the next generation of the Canadian Internet.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.